California pension reform incites scrutiny

By Steven Harmon Bay Area News Group

Posted:
08/29/2012 07:01:59 PM PDT

Updated:
08/30/2012 08:17:58 AM PDT

Click photo to enlarge

Dave Low, chairman of Californians for Retirement Security, accompanied by other representatives of various public employee unions, discusses his opposition to Gov. Jerry Brown's reform plan for California's public pension system at a news conference in Sacramento, Calif., Tuesday, Aug. 28, 2012. Brown's plan, which he says will save taxpayers billions of dollars, includes a cap on annual pension payments, a requirement that new employees contribute at least half their pension costs and increase the retirement age for public safety and non-safety employees. Low said union groups have had no input in Brown's plan, saying that "We've been called into meetings to be briefed on this, but there have been no negotiations with the governor or the Legislature."(AP Photo/Rich Pedroncelli)

SACRAMENTO -- Some of the big ticket features of the pension reform unveiled Tuesday by Gov. Jerry Brown may not live up to their billing -- at least not for a very long time.

Take the much-ballyhooed cap on pensions for new public employees who make $132,120 or more. Less than 2 percent of the state's quarter-million employees make that much, so savings from the cap for future six-figure earners would be almost negligible, according to a Bay Area News Group computer analysis.

That could be a problem politically for Brown, who is tying the success of his November tax-hike initiative to the perception that Democrats got rid of the state's pension headache.

"Will this show on the bottom line right now? No," said pension expert Chris Burdick, a Marin County attorney.

Indeed, a day after Brown and top Democrats in the Legislature announced the deal they say will rein in the state's runaway pension costs, many of its implications were still unclear as the Legislature barrels toward a midnight Friday deadline to pass a pension-reform package.

Under the proposal, the cap that would apply to their pensiosn for most workers would be $110,100. For the 35 percent or so who do not participate in the Social Security system -- mostly police officers, firefighters and other public-safety workers -- the cap would be $132,120.

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According to salary data obtained by the Bay Area News Group from the state Controller's Office, only 1.6 percent of 246,297 state workers exceeded $132,120 in base pay last year; only 3.7 percent exceeded $110,100.

The numbers are higher among local government employees, at least in the Bay Area: About 5 percent of the 214,551 public employees in the Bay Area News Group's database make more than $110,100 in base pay.

Only only those workers hired after Jan. 1 would be subjected to any cap.

A preliminary analysis of the pension plan by CalPERS, one of the state's two big pension funds, echoed the estimate of legislators, who say it will save between $40 to $60 billion over 30 years. But critics argue that it would have been a lot more if state lawmakers had modeled the reforms on those instituted by the federal government in the 1980s -- something Brown had suggested in his 12-point plan released last October.

The federal government in 1986 established a new retirement system for civilian U.S. government workers. Employees covered under the old plan did not participate in Social Security, and their pensions were considered more generous and costly.

The new plan divided the retirement benefit between Social Security, a 401(k)-type savings plan and a smaller defined-benefit traditional pension. The current plan is considered solvent and a model of "hybrid" pension reform.

Senate President Pro Tempore Darrell Steinberg's office said there were "problems" with implementing such a plan for California and proposed the pensionable pay cap as an alternative.

"I was disappointed," said accountant Marcia Fritz, a Democrat who is president of the California Foundation for Fiscal Responsibility. "I don't know why they said it was too hard to implement."

CalPERS spokeswoman Amy Norris didn't dispute that a relatively small percentage of public workers have salaries exceeding the proposed "pensionable" pay cap.

"Most people aren't going to make that much money," Norris said. "I can't give you an exact percentage, but it's going to be small."

Fritz said that the "pensionable" pay cap will have a significant impact on local governments, where it will affect more workers.

"Where the abuse is mostly is in the local agencies," Fritz said. "That's where you see cities going bankrupt."

Under the bill, current state workers will eventually be required to contribute 50 percent of their pensions. But a large swath of public employees -- those who work for local governments -- would have another five years before they'd be asked to contribute half of their pensions. And even then, they may not.

Current local employees would ostensibly be required to agree to 50 percent contributions by 2018. But though employers could declare an impasse if no agreement was reached and be given the ability to impose the contribution levels, there is nothing in the law that would require them to do so.

"Now locals are locked into a five-year scenario where they can't impose" higher contributions, said Art Hartinger, an Oakland attorney and labor employment expert.

But the biggest barrier to finding the kind of savings to make pensions solvent for the long term, critics say, is the legal one: The courts have frowned upon attempts at taking away collectively bargained pension benefits.

Nothing short of a constitutional amendment -- or a major turnabout by the state's Supreme Court -- would allow reformers to get their hands on current employees' benefits.

"Public employees' benefits are vested, immutable and unchangeable," said Burdick, the pension expert. "That's been the law for 100 years.

"Unless the California Supreme Court is prepared to change 100 years of absolutely unchanging, straight-line case law, the Legislature really had no choice."